The biggest policy boost for clean energy during President Obama's second term isn't coming from the Department of Energy or from Congress -- it's coming from the Environmental Protection Agency.
This morning, the EPA finally announced plans to slash carbon emissions from 1,000 fossil-fueled power plants by 30 percent compared to 2005 levels over the next decade and a half. The proposed rule creates a flexible framework that allows states to cut emissions through utility efficiency programs, renewable energy procurement, on-site pollution controls and regional cap-and-trade programs.
In a speech this morning unveiling what the EPA is calling the "clean power plan," EPA Administrator Gina McCarthy said she wanted to "turn climate risk into business opportunity" by using new rules to help grow the share of clean energy in the generation mix.
Last fall, the EPA finalized a carbon rule for new power plants. But the difficult process of regulating carbon pollution from existing power plants was only publicly set in motion today. Over the next four months, EPA will consider additional comments from stakeholders, and then will finalize the rule by June of next year. States will have another year to craft their plans.
"This plan is all about flexibility," said McCarthy. "We looked at where states are today, and we followed where they’re going. Each state is different, so each goal, and each path, can be different."
The regulations are being described by some as the single most important development in Obama's second term. And with no direction on clean energy or climate policy in Congress, they will also be one of the most important developments for the renewable energy and efficiency industries since getting $90 billion through the 2009 stimulus package.
“These proposed EPA carbon pollution regulations will accelerate innovation and development across the U.S. energy sector. Other countries have surged into the forefront in clean energy practices. These standards can catalyze new low carbon investment here at home," said Ken Locklin, managing director of Impax Asset Management in a statement.
There are a lot of metrics to help gauge the impact of the rule: cost or savings to ratepayers; total economic cost as a percentage of GDP; health savings; or tons of CO2 reduced. But the most important figure for the clean energy industry may be 67 percent.
That's how much the EPA expects non-hydro renewable energy capacity to grow over a business-as-usual scenario by the end of the decade if the carbon rules are implemented. Under a high-deployment scenario, EPA projects capacity to grow by two-thirds above the baseline by 2020 and another 25 percent by 2025. Under a lower-deployment scenario in a shorter timeframe, EPA projects up to a 50 percent increase in renewable energy capacity by 2020. Meanwhile, coal generation would decline by about 20 percent.
That could mean an additional 21,000 megawatts of renewable energy capacity in the next decade and a half. Those numbers may actually be somewhat low. GTM Research expects the solar PV market alone to reach roughly 8,000 megawatts by 2016 without any additional policy changes. However, if the federal Investment Tax Credit expires in 2017, the carbon rule could provide an additional boost in deployment through the end of the decade.
The new EPA rules create the foundation for all 50 states to develop renewable energy targets or carbon trading systems, potentially opening up markets with very little renewable energy penetration. Here's a list of eligible methods to reduce carbon emissions from the EPA:
- Invest in existing energy efficiency programs -- or create new ones
- Consider market trends toward improved energy efficiency and a greater reliance on lower-emitting power sources
- Expand renewable energy generation capacity
- Tap into investments already being made to upgrade aging infrastructure
- Integrate their plans into existing power-sector planning processes
- Design plans that use innovative, cost-effective regulatory strategies
- Develop a state-only plan or collaborate with each other to develop plans on a multi-state basis
"All of these options are not new ideas. They’re based on proven technologies, proven approaches, and are part of the ongoing story of energy progress in America. Our plan doesn’t prescribe -- it propels that progress already underway," said McCarthy.
According to the EPA, yearly costs could amount to more than $8 billion per year -- a fraction of the $359 billion that utilities are expected to spend over the next decade to modernize the grid and build new generation units. The EPA's models suggest the expansion of renewables and efficiency would be roughly 2 percent of the cost to meet electricity demand.
"With the growing adoption of clean energy by utilities, businesses and home owners in recent years, compliance with the EPA’s proposed emissions standards announced today may be easier than some detractors in the utility industry would have you believe," said SunPower CEO Tom Werner. He pointed out that solar was the second-biggest source of electricity capacity last year.
Before EPA's analysis was released, the U.S. Chamber of Commerce issued its own report claiming that the rules would cut annual GDP by $51 billion and kill hundreds of thousands of jobs each year.
Since the EPA was formed, business groups have claimed that clean air and water regulations would destroy the economy. So far, none of those analyses have proven correct.
"The facts are clear. For over four decades, EPA has cut air pollution by 70 percent and the economy has more than tripled," said McCarthy.
The Chamber of Commerce is unsurprisingly positioning itself against the rule. However, 128 major companies and 49 investors managing $800 billion in assets sent a letter to the EPA touting the "economic opportunities" from regulating carbon pollution in a flexible way.
"We invest across many sectors of the economy and are excited about an approach that goes beyond improvements at power plants. We are also encouraged that the proposed rule will allow states to build on the successful renewable energy and energy efficiency policies already in place around the country," wrote the investors.
Assuming there are no major legal problems, states will finalize their plans by 2016.
Interested in hearing about how utilities and technology vendors are thinking about opportunities and challenges from these new regulations? Come to our Grid Edge Live conference on June 24-25 in San Diego.